Post on 26-May-2020
Overview of Scope
• Development Analysis Process
• Pro Forma Work
• Analysis of Fee in Lieu versus building Affordable/Workforce Housing
1
Question: How many housing units can be created that are affordable to moderate
income workers while providing real estate developers with a reasonable return on their
investment?
2
Comparison of Development Types
SM 85’ SM 160’ SM 240’
FAR 4.75 7.75 11.0
Gross Allowable SF 99,750 162,750 231,000
Apartments 105 145 225
SM 85’
SM 160’
SM 240’
3
Affordability Analysis 240’
4
Mid Rise Apartment - 85' High Rise Apartment - 240'
Project Program
Site (SF): 21,000 21,000
Zoning: SM 85 SM 240
Height Limit: 85 240
Allowable FAR: 4.75 11
Gross SF 94,950 226,965
Total Units: 105 225
Affordability Sensitivity Summary
Scenario 1 (Current) Scenario 2 Scenario 3 Scenario 4
Pay in Lieu - No Affordability 10% of Units @ 80% AMI 15% of Units @ 80% AMI 20% of Units @ 80% AMI
Number of affordable units: 0 23 34 45
Land Value: $ 5,250,000 $ 10,141,463 $ 10,141,463 $ 10,141,463 $ 10,141,463
Total Estimated Development Cost (incl land) $ 29,052,000 $ 80,285,000 $ 78,293,000 $ 78,293,000 $ 78,293,000
Total Estimated Project Value (5.5% CAP Rate): $ 32,905,000 $ 101,716,000 $ 97,205,000 $ 94,950,000 $ 92,695,000
Stabilized Return on Equity (ROE): (3) 5.6% 9.1% 8.4% 7.6% 6.8%
Residual Land Value Increase $ 0 $ 4,891,463 $ 4,891,463 $ 4,891,463 $ 4,891,463
Net Project Value Increase $ 3,853,000 $ 21,431,000 $ 18,912,000 $ 16,657,000 $ 14,402,000
Total Project Value Increase ($): $ 3,853,000 $ 26,322,463 $ 23,803,463 $ 21,548,463 $ 19,293,463
Incentive Zoning Program Analysis Total Per NSF Total Per NSF Total Per NSF Total Per NSF
Pay in Lieu Fee ($18.85/NSF Bonus Height): $ (1,990,786) $ (18.85)
Pay in Lieu Fee Equal to Impact of Affordability: $ 1,990,786 $ 19 $ 6,501,786 $ 62 $ 8,756,786 $ 83 $ 11,011,786 $ 104
Pay in Lieu Fee TDR portion (40% at $18.75) $ 792,090 $ 18.75 $ 792,090 $ 18.75 $ 792,090 $ 18.75 $ 792,090 $ 18.75
Pay in Lieu Fee Affordable Housing ( 60% at $ 1,198,696 $ 18.92 $ 5,709,696 $ 90.10 $ 7,964,696 $ 125.69 $ 10,219,696 $ 161.28
(1) Payment of the Pay in Lieu Fee as shown will lower the ROE but result in the calculated % value
increase.
(2) Return on Equity (ROE) indicates cash-on-cash return upon stabilization & occupancy. The typical
investor threshold yield for ROE for new mixed-use multifamily projects ranges from 5% - 8% upon
stabilization.
(3) Capitalization rates are used to estimate the value of an income-producing property. The range of
capitalization rates reflect the current Seattle market as of Q4 2012/Q1 2013 for well located, stabilized,
low vacancy apartment projects. According to the Dupre & Scott Apartment Advisor December 2012
report the average capitalization rate for King County is 5.3%. Capitalization rates change fluctuate
frequently as they are heavily influenced by overall market demand for a specific product type,
investor/lender appetite, and current cost of capital (interest rates).
Balancing Public and Private Benefit
Developer’s return on equity, with a set-aside as high as 20%, would be greater than if building just to base height.
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0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Pay in Lieu - No Affordability
10% of Units @ 80% AMI
15% of Units @ 80% AMI
20% of Units @ 80% AMI
High Rise - 240': Return on Equity (ROE)
Return on Equity (ROE)
Baseline
Questions and Answers
6
Appendix
7
Affordability Analysis 160’
8
Mid Rise Apartment - 85' High Rise Apartment - 160'
Project Program
Site (SF): 21,000 21,000
Zoning: SM 85 SM 160
Height Limit: 85 160
Allowable FAR: 4.75 7.75
Gross SF 94,950 162,002
Total Units: 105 145
Affordability Sensitivity Summary
Scenario 1 (Current) Scenario 2 Scenario 3 Scenario 4
Pay in Lieu - No Affordability 10% of Units @ 80% AMI 15% of Units @ 80% AMI 20% of Units @ 80% AMI
Number of affordable units: 0 14 22 29
Land Value: $ 5,250,000 $ 6,510,000 $ 6,510,000 $ 6,510,000 $ 6,510,000
Total Estimated Development Cost (incl land) $ 29,052,000 $ 53,013,000 $ 52,001,000 $ 52,001,000 $ 52,001,000
Total Estimated Project Value (5.5% CAP Rate): $ 32,905,000 $ 67,783,000 $ 65,157,000 $ 63,844,000 $ 62,530,000
Stabilized Return on Equity (ROE): (3) 5.6% 10% 9% 8% 7.3%
Residual Land Value Increase $ 0 $ 1,260,000 $ 1,260,000 $ 1,260,000 $ 1,260,000
Net Project Value Increase $ 3,853,000 $ 14,770,000 $ 13,156,000 $ 11,843,000 $ 10,529,000
Total Project Value Increase ($): $ 3,853,000 $ 16,030,000 $ 14,416,000 $ 13,103,000 $ 11,789,000
Incentive Zoning Program Analysis Total Per NSF Total Per NSF Total Per NSF Total Per NSF
Pay in Lieu Fee ($18.85/NSF Bonus Height): $ (1,011,144) $ (18.85)
Pay in Lieu Fee Equal to Impact of Affordability: $ 1,011,144 $ 19 $ 3,637,144 $ 68 $ 4,950,144 $ 92 $ 6,264,144 $ 117
Pay in Lieu Fee TDR portion (40% at $18.75) $ 402,312 $ 18.75 $ 402,312 $ 18.75 $ 402,312 $ 18.75 $ 402,312 $ 18.75
Pay in Lieu Fee Affordable Housing ( 60% at $ 608,832 $ 18.92 $ 3,234,832 $ 100.51 $ 4,547,832 $ 141.30 $ 5,861,832 $ 182.13
(1) Payment of the Pay in Lieu Fee as shown will lower the ROE but result in the calculated % value increase.
(2) Return on Equity (ROE) indicates cash-on-cash return upon stabilization & occupancy. The typical investor
threshold yield for ROE for new mixed-use multifamily projects ranges from 5% - 8% upon stabilization.
(3) Capitalization rates are used to estimate the value of an income-producing property. The range of
capitalization rates reflect the current Seattle market as of Q4 2012/Q1 2013 for well located, stabilized, low
vacancy apartment projects. According to the Dupre & Scott Apartment Advisor December 2012 report the
average capitalization rate for King County is 5.3%. Capitalization rates change fluctuate frequently as they are
heavily influenced by overall market demand for a specific product type, investor/lender appetite, and current
cost of capital (interest rates).
Comparison of Values for Each Development Type
9
Mid Rise Apartment - 85' High Rise Apartment - 160' High Rise Apartment - 240'
Project Program
Site (SF): 21,000 21,000 21,000
Zoning: SM 85 SM 160 SM 240
Height Limit: 85 160 240
Allowable FAR: 4.75 7.75 11
Gross SF 94,950 162,002 226,965
Total Units: 105 145 225
Affordability Sensitivity Summary
Scenario 4 Scenario 4
20% of Units @ 80% AMI 20% of Units @ 80% AMI
Number of affordable units: 29 45
Land Value: $ 5,250,000 $ 6,510,000 $ 10,141,463
Total Estimated Development Cost (incl land) $ 29,052,000 $ 52,001,000 $ 78,293,000
Total Estimated Project Value (5.5% CAP Rate): $ 32,905,000 $ 62,530,000 $ 92,695,000
Stabilized Return on Equity (ROE): (3) 5.6% 7.3% 6.8%
Residual Land Value Increase $ 0 $ 1,260,000 $ 4,891,463
Net Project Value Increase $ 3,853,000 $ 10,529,000 $ 14,402,000
Total Project Value Increase ($): $ 3,853,000 $ 11,789,000 $ 19,293,463
Incentive Zoning Program Analysis Total Per NSF Total Per NSF
Pay in Lieu Fee ($18.85/NSF Bonus Height):
Pay in Lieu Fee Equal to Impact of Affordability: $ 6,264,144 $ 117 $ 11,011,786 $ 104
Pay in Lieu Fee TDR portion (40% at $18.75) $ 402,312 $ 18.75 $ 792,090 $ 18.75
Pay in Lieu Fee Affordable Housing ( 60% at $ 5,861,832 $ 182.13 $ 10,219,696 $ 161.28
(1) Payment of the Pay in Lieu Fee as shown will lower the ROE but result in the calculated % value increase.
(2) Return on Equity (ROE) indicates cash-on-cash return upon stabilization & occupancy. The typical investor
threshold yield for ROE for new mixed-use multifamily projects ranges from 5% - 8% upon stabilization.
(3) Capitalization rates are used to estimate the value of an income-producing property. The range of
capitalization rates reflect the current Seattle market as of Q4 2012/Q1 2013 for well located, stabilized, low
vacancy apartment projects. According to the Dupre & Scott Apartment Advisor December 2012 report the
average capitalization rate for King County is 5.3%. Capitalization rates change fluctuate frequently as they are
heavily influenced by overall market demand for a specific product type, investor/lender appetite, and current
cost of capital (interest rates).
240’ Summary Data 20% @ 80% AMI: Total Development Cost and Net Operating Income
APARTMENT PRO FORMA TEMPLATE
DEVELOPMENT SUMMARY
Rate Total GSF Per Unit
Acquistion Costs
Land 13% $ 10,141,463 $ 37 $ 45,000
Subtotal 13% $ 10,141,463 $ 37 $ 45,000
Hard Costs
Construction Cost $ 175 $ 48,402,716 $ 175 $ 214,774
Contingency 5.0% $ 2,420,136 $ 9 $ 10,739
WSST 9.5% $ 4,828,171 $ 17 $ 21,424
Subtotal 71% $ 55,651,023 $ 201 $ 246,936
Soft Costs
Pay in Lieu/TDR Fee 0.0% $ - $ - $ -
Permits 0.5% $ 296,066 $ 1 $ 1,314
Utility Connection Fees 0.6% $ 361,859 $ 1 $ 1,606
A/E + Consultants 6.0% $ 3,947,549 $ 14 $ 17,516
Developer Fee 5.0% $ 3,289,624 $ 12 $ 14,597
Financing/Insurance/Interest 6.0% $ 3,947,549 $ 14 $ 17,516
Miscellaneous 1.0% $ 657,925 $ 2 $ 2,919
Subtotal 16% $ 12,500,572 $ 45 $ 55,468
TOTAL DEVELOPMENT COST 100% $ 78,293,059 $ 283 $ 347,404
OPERATING SUMMARY
Rate Total GSF Per Unit
Annual Income (Stabilized)
Gross Residential - Market $ 4,846,267 $ 18 $ 21,504
Gross Residential - Affordable $ 691,242 $ 2 $ 3,067
Gross Commercial $ 27 $ 1,105,650 $ 4 $ 4,906
Gross Ancillary 7% $ 465,021 $ 2 $ 2,063
Less Residential Vacancy 5% $ (242,313) $ (1) $ (1,075)
Less Commercial Vacancy 7% $ (77,396) $ (0) $ (343)
Effective Gross Income $ 6,788,472 $ 25 $ 30,122
Annual Operating Expenses
Operating Expenses 25% $ (1,690,244) $ (6) $ (7,500)
Subtotal $ (1,690,244) $ (6) $ (7,500)
NET OPERATING INCOME (NOI) $ 5,098,228 $ 18 $ 22,622
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240’ Summary Data 20% @ 80% AMI: Financial Summary
FINANCIAL SUMMARY
Rate Total GSF Per Unit
Sources LTV @ 5.5 cap
Debt 80% $ 62,634,447 $ 226 $ 277,923 68%
Equity 20% $ 15,658,612 $ 57 $ 69,481
Total Sources 100% $ 78,293,059 $ 283 $ 347,404
Debt Service & Distributions DSCR
Annual Debt Service 5.0% $ (4,034,823) $ (15) $ (17,903) 1.26
Annual Replacement
Reserves $ - $ - $ - $ -
Subtotal $ (4,034,823) $ (15) $ (17,903)
ANNUALIZED CASHFLOW $ 1,063,405 $ 4 $ 4,719
PROJECT RETURNS
Return on Equity (ROE)* 6.8%
Sensitivity Valuation Analysis Cap Rate** Market Value of Project
4.0% $ 127,455,696
4.5% $ 113,293,952
5.0% $ 101,964,557
5.5% $ 92,695,052
6.0% $ 84,970,464
* See ROE description on Comparison Summary Tab
** See capitalization rate description on Comparison Summary Tab
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South Lake Union Apartment Rental Rate Comparison
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Rent per month (excluding utilities)
Studio 1 bedroom 2 bedroom
Market (New high rise construction) $1,650 $2,080 $3,150
Families earning 80% of AMI $1,114 $1,288 $1,422
Families earning 60% of AMI $810 $941 $1,031